The European Commission has published its first "alert mechanism report" as an early warning system identifying structural economic weaknesses in Britain, France, Italy and nine other EU countries.

"The objective is to identify and help correct risky and harmful imbalances that have built up over the years," said Olli Rehn, the EU's economic and monetary affairs commissioner.

The commission expressed fears that high levels of private borrowing in Britain, driven by high property prices, is "strongly linked" to public debt via bank bail-outs and "feedback effects".

"The high level of private debt is a concern in a context of a weak public finance situation with high and increasing public debt. The household debt largely reflects mortgages in a context of high accumulated increases in house prices," it warned.

"While both the level of household debt and real house prices has been reduced, they still remain high which suggests that the unwinding of these imbalances has further to go."

A Government spokesman said: "This report simply reinforces the unsustainable imbalances that built up over the past decade and underlines why the government is right to be getting a grip of the country's debt."

Britain was also warned that its declining share of exports was the worst in the EU, down 24.3pc over the last five years. But while Britain was praised for "stabilising" its export decline, the EU is concerned that France's continued slide in global market share is damaging French business.

"There is a gradual deterioration of the trade balance, and this is reflected in a deterioration of the current account balance," the report said. "The reduction in profitability of French companies and the implications for investments are relevant factors that deserve further analysis."

The commission said Italy's public debt, equal to about 120pc of GDP, was a problem given a track record of stalled economic growth and a "significant deterioration in competitiveness".

Belgium, Bulgaria, Denmark, Spain, Cyprus, Hungary, Slovenia, Finland and Sweden are also to be investigated for imbalances under new EU "enhanced surveillance" powers for Brussels.

Under the new regime, aimed at heading off repeats of the eurozone debt crisis, Britain can be investigated but cannot be sanctioned if it is found to have persistent imbalances.

UK house price volatility highlighted in EC report

The EC report says: "There might still be scope for further retrenchment in several countries which also experienced large and fast house price increases, such as the United Kingdom, as there is typically a direct link between the strength of the correction phase and the amplitude of the boom phase of the house price cycle.

In addition, worsening credit conditions and weak GDP growth are likely to weigh on housing prices developments in the near future.